Journalism Sites

Journalism traditionalists who suffer from high blood pressure probably shouldn’t read this piece by Forbes editor Lewis DVorkin. In it, he outlines the role of what he calls “brand journalism” in the evolution of Forbes.com, and even in Forbes magazine. He also scolds journalists for their objections to this increasingly popular concept, saying that their interest in keeping marketing content cordoned off from staff editorial is in part an instinct to minimize competition.

DVorkin has been a vocal critic of those who cling to the traditional Chinese wall principle of strict separation between advertising and editorial. In his view, the new economics of the profession demand radical new ideas, and journalists are standing in the way. “After five years of media turmoil, the profession I love clings to the belief…that the industry’s problems are for other people to solve. And when steps are taken to solve them, my colleagues will put up a fight if they can’t do exactly what they did before,” he wrote a couple of weeks ago in a summary of the changing advertising landscape and Forbes’ adaptation strategy.

Like it or not, DVorkin’s vision of increased integration between marketing and editorial content is gaining favor in traditional publishing circles. The trend is called “brand journalism,” “native advertising” or “content marketing,” but whatever the title, it’s breaking down some traditional walls.

Boston.com, which is the online arm of the Boston Globe, recently launched “Insights,” a sponsored advertising feature that showcases blog posts from advertisers. Boston.com is a little more aggressive about labeling Insights material as advertising than some other brand journalism practitioners, but it’s the same basic idea. The publisher appears to have no problem with participants like Business Intelligence Solutions embedding the banner ad at right on its blog, saying nothing about the sponsorship arrangement.

Some other publishers have all but erased the lines between staff and brand content. BuzzFeed, which is one of the new breed of breathless, celebrity-stuffed news sites for the ADD set, expects to derive nearly all of its revenue from branded content and sponsored posts. So far, things are going pretty well. The site was a magnet for political advertising during the US presidential campaign and is expected to triple revenues this year. Branded features, like this one from JetBlue, look the same as BuzzFeed content and carry only lightweight advertiser labeling. The Atlantic is also in the pool with Quartz, a news site that blends branded and staff-written content more or less seamlessly.

Writing on emedia, Rob O’Regan has a good summary of this trend, which has been fueled by Twitter’s sponsored tweets and Facebook’s sponsored stories. Those companies, which have no preconceptions about ad/edit separation, say these new vehicles are a resounding success. Publishers are taking notice, but a news site is not a social network. News organizations trade on credibility, and “native” ads tread into new territory. Recent research by Mediabrix and Harris Interactive found that readers often feel confused or misled by branded content.

Compatible Content

The reason all this is happening, of course, is that the traditional print advertising model doesn’t work in the highly targeted online world. Display advertising is the fastest growing category of online advertising, and publishers have always known that display ads surrounded by compatible content perform best. Advertisers have traditionally bought space next to compatible content, but now they want to provide the content, too, because people are rejecting traditional messaging.

Sponsored content is nothing new. Mobil Oil bought space on The New York Times‘s op-ed page in the 1950s. What’s different today is that a severely weakened mainstream media is willing to be more the creative than ever in placement and labeling – even if that means potentially compromising their own brands.

Is this a horrifying development? The journalism purest in us says yes, but we’re inclined to keep an open mind. Lewis DVorkin has a point when he says journalists live in a bubble. Social media have shown that good information can come from anywhere, even from people who aren’t journalists. As media organizations have learned to their chagrin in recent years, you can’t shove anything you want down people’s throats when they have infinite choice. The same applies to advertisers.

Regardless of who the author is, anyone who publishes content is at the mercy of readers. Marketers who publish the same dreck on branded media sites that they use to fill their purchased ad units won’t see much return on their investment. If people don’t want the content, it doesn’t matter how much you pay to publish it.

So the stakes are higher for marketers, too. The question is how many of them can successfully change their perspective to think like publishers. In our experience, precious few can. The natural instincts of people who have grown up in the traditional marketing world is to sell at every opportunity, not to serve the informational needs of the audience.

This will change over time as a new generation steps in, and publishers will play a key role in effecting that change. They will need to work with their clients to make sure the sponsored content they carry is worthy of their brand. It can be done. Admit it: If you clicked on the JetBlue link above, you scrolled down the entire page. It’s good stuff, even though it’s sponsored.

The silver lining is that if “native advertising” can become a major new revenue source, it can enable publishers to re-invest in quality journalism. In the end, that’s more important than labels or Chinese walls.

Here’s a news item we didn’t expect to see. Borrell Associates now predicts that U.S. newspaper revenue will rise in 2013, although only by a scant .5%. If the prediction holds true, it would be the industry’s first revenue increase since 2006.

Borrell’s optimistic newspaper forecast defies conventional wisdom. The research and consulting firm has no particular incentive to bolster the print newspaper business, but it has been forecasting a turnaround for a couple of years. CEO Gordon Borrell said he expects most of the revenue growth to accrue to small newspapers, which have been the most resilient segment of the business during its historic decline. Large dailies will continue to see the annual 4% to 6% declines that have been the norm for the last few years.

Borrell is also putting a lot of faith in local online advertising, which it predicts will grow 30% next year. Given that online ad growth at newspapers has been in the single digits annually for the last four years, that seems a stretch. You can hear all of Gordon Borrell’s comments in this recorded webcast.

There’s also good news in magazine land. The Magazine Publishers Association surveyed its members and found a 57% jump in the number of brands advertising on all magazine media platforms since 2010. That includes tablet, online and print advertising. The MPA also said magazine apps are some of the highest-grossing titles in the areas of lifestyle, health & fitness and news in the iTunes store.

Publishers apparently are a pretty upbeat bunch. A new study by Michael Jenner of the University of Missouri’s School of Journalism finds that two-thirds of newspaper publishers are optimistic about the future, and only 4% are pessimistic. Jenner said the research is based on 450 in-depth interviews with senior publishing executives. They’re moving ahead aggressively on digital platforms, but 60% “do not envision a time in the future when their individual publications will no longer issue print versions of the news.” We admire their optimism, but that’s just nuts.

The Numbers from Nola

Ken Doctor has no illusions about the future. “We all realize that, at some point, daily print will go away,” he writes at the top of this financial analysis of the New Orleans Times-Picayune‘s frequency cuts. Doctor understands the economics of the news publishing business as few people do (his Newsonomics site is a must-read), and this analysis is a useful insight into the revenue and expense models of metro dailies.

Doctor estimates, for example, that circulation brings in about 30% of total revenue at the Times-Picayune and that the four daily editions that are being eliminated contribute between 25% and 30% of print ad revenues. The net result of the paper’s cutback from seven to three issues per week is about an 11% advantage in profitability, he estimates. That’s good, but there are big risks. One is that the T-P is bucking the trend of deriving more revenue from readers and actually doubling down on advertising as a strategy. In effect, it’s doing more of what got newspapers into trouble in the first place.

Meanwhile, the competitive news environment in the Big Easy has made the paper a tempting target for everything from a startup called The Lens to the Baton Rouge Advocate. “Simply, the T-P’s slimming has opened up a floodgate of competition,” Doctor writes. “That makes the distinctive value proposition of the T-P harder and harder to get paying readers to accept.”

Update, 10/17/12: A survey by Cribb, Greene reports that newspaper publishers are increasingly confident about the future. More than 40% said their local markets are improving, up from 14% in 2011. The percentage who expect profitability to improve this year rose to 52% from 39%, and those who expect advertising revenue to be higher in 2013 grew by a similar margin. Asked if they would buy a newspaper business in the current economic climate, about half said “no.” However, 69% responded “yes” or “maybe” when asked if they would recommend the newspaper business as a career for their children.

Maybe it’s the summer slowdown kicking in, but the news has been mostly bad this month.

Why must all media coverage of newspapers have a photo like this?

David Carr writes about a little-discussed liability that’s nearly as damaging to the newspaper industry as its mountain of debt: Pension obligations. Gannett pension fund is under-capitalized by $942 million, McClatchy’s by $383 million and The New York Times Co.’s by $522 million. Carr says the hedge funds that bought up newspapers at bargain prices over the last few years are running for the exits, but they can’t find anyone to take the properties off their hands. Pensions are one reason why. The only investor who’s shown confidence in the industry lately is Warren Buffett, but Carr notes that even he stuck Media General with the retirees when he bought a bunch of its titles.

Pension funds became an albatross around the necks of the steel and auto industries back in the 1980s. Faced with retiree obligations that were, in some cases, significantly larger than annual revenues, companies like U.S. Steel had not choice but to shaft the recipients. A lot of newspapers set up generous pension funds when times were good in the 70s and 80s, and now those workers are retiring. It’s a frightening replay of history, particularly if you’re nearing retirement age.

Carr’s piece is kind of a mid-year health check on the state of the industry, and there’s very little cheer about. He opens with accounts of some recent printed blunders that would have been unthinkable a few years ago. The situation in the print world is so bad that when the New Orleans Times-Picayune offered jobs to some of its editorial staff on the new three-day-a-week print edition, many said no, thanks. They included a Pulitzer Prize winner and one of the editors who anchored the paper’s Hurricane Katrina coverage.

The Thin Line Between Journalism and Typing

Carr reserves some of his most acerbic comments for Journatic, an editorial outsourcing firm part-owned by Tribune Co. that is suddenly getting a lot of scrutiny for practices that would make a professional journalist’s stomach turn.

Read Ryan Smith’s insider account on The Guardian for a look at how far the newspaper industry has fallen. Journatic lives under the radar (its sparse website is actually designed not to attract search engines), providing copy to client publishers that is mostly produced by a loose network of freelancers who work for pocket change. Many of its writers are in the Philippines, which means they speak decent English and work for less and a dollar an hour.

Most of them can’t write very well, though, and Smith recounts stories of barely rewritten press releases that crossed his editor’s desk ready to go into some of America’s finest newspapers. Press releases are Journatic’s bread and butter, along with obituaries from Legacy.com and real estate transaction listings. These are rewritten by its far-flung editorial staff and turned in to U.S. copy editors who make $10/hour. The practice that’s drawn the most criticism is Journatic’s practice of putting fake bylines on articles. The company says it adopted the tactic to protect employees, but that doesn’t sit well with its clients, who are now abandoning ship in the wake of negative media coverage. Hundreds of bogus bylines have already shown up in the Houston Chronicle, Chicago Tribune, Chicago Sun-Times and San Francisco Chronicle, writes Poynter’s Jeff Sonderman.

Oops.

Journatic produces original content, too. It farms out local stories to U.S. freelancers who report by phone from 1,000 miles away while pretending to be at a desk in the newsroom across town. Reporters need to work quickly. Smith says he was offered $24 for an 800-1,000-word story, $12 for 500 words and $10 for a Q&A. Most of the work went unedited into major newspapers as if reported by a staff journalist.

I’ve copyedited or written news stories for a handful of major US newspapers over the past 18 months – the Houston Chronicle in Texas, San Francisco Chronicle in California and Newsday in Long Island, New York and others – yet it’s doubtful that any of the editors or senior executives for those news organizations could pick me out of a police line-up. In fact, it’s unlikely they could tell you a single personal detail about me or the other journalists behind the bylines of countless stories that appear in their print editions or on their websites, as provided by my employer.

A number of big dailies have quit using Journatic in the wake of recent unflattering coverage, but you can bet this model is far from dead. “Journatic’s approach — and the change it represents — is not going away,” writes Craig Silverman on Poynter.org. That’s because the economics of the news industry are in such dire straits. Whatever work can go offshore will go offshore as newspapers struggle to keep their print properties viable. With revenues spiraling down at 8% to 10% per year, quality will only get worse.

But it’s not just print. As the Times’ Carr points out, no one has yet cracked the code of making online local news profitable. In fact, Journatic’s stronghold is local media, which simply can’t afford to hire full-time reporters any more. So they lay off staff and farm out coverage of the local football team to a stringer. In Manila. (Hat tip to David Strom)

Tablet Salvation

The good news is that tablets will save the day, right? Possibly, but don’t count your winnings just yet. A new study by the Reynolds Journalism Institute and the University of Missouri finds that lots of people use their tablets to keep up with the news. In fact, news-reading is the fourth most popular activity by tablet users, behind communication, entertainment and Web search. Users’ preferred source of information is news organization websites by a nearly 8:1 margin over social media. Interestingly, 53% of the 1,015 survey respondents said news-on-tablet was a better reading experience than ink-on-dead-trees, compared to just 18% who favor printed media.

The Public Relations Society of America suggests that tablets could revitalize the evening paper, since so much iPadding takes place after 5. But they’ll have to convince Rupert Murdoch of that. The media mogul has reportedly put The Daily on watch. The iPad-only zine is losing $30 million a year, The Politico reports, and its viability will be reassessed after the Nov. 6 election. This despite the fact that The Daily broke the story of Pink Slime, the ground beef additive that triggered a hysterical reaction in the U.S. earlier this year before the USDA stepped in and said that not only is the ingredient safe, but we’ve been eating it for a decade without knowing.

BTW, the most interesting item in the Politico story may be the comment by Martha Jo Peters, whose Facebook profile simply says, “Intend to live alone the rest of my life.” Evidently Murdoch is at least partly responsible. Sad.

Twitter’s News Ambitions

Mathew Ingram thinks Twitter wants to be a media company, and that means its role in the media ecosystem will get more complex. Twitter faces the same challenges that Google has been struggling with for several years: Its basic value is as a filter and organizer that quickly sends people elsewhere on the Web, but it’s hard to make money when your visitors are always leaving so quickly. In essence, the publishing model that is failing so badly in the traditional media is the model that the biggest new-media startups are seeking.

Twitter appears to see its future as being some kind of newswire. In an interview with the Los Angeles Times, CEO Dick Costelo said, “Twitter is heading in a direction where its 140-character messages are not so much the main attraction but rather the caption to other forms of content.” Remember that quote, because it’s really important. It means that in the future Twitter wants to host more content instead of sending people away. But where’s the content going to come from? A lot of it will be from media companies, which have come to value Twitter as a traffic-driver but who may now have to re-evaluate that relationship. Like Google, Twitter is both their best friend and their worst enemy.

If you’ve noticed there are a lot more dead third-party Twitter sites lately, there’s a reason: Twitter is locking down its famously open set of application interfaces and trying to control more of the user experience. Ingram notes that Twitter has had great success with its mobile ads and promoted tweets, and it would like users to stay a little longer on its site. The acquisition of Tweetdeck, as well as several recent improvements to the Twitter.com user experience, are part of that campaign to capture more of the visitor’s time.

Has your local newspaper trimmed frequency from seven days to something else? We’ve had a few inquiries recently from people looking for a list of such journals, but we’ve never seen one. If you have, please provide a link in the comments, or simply tell us if your local paper has been affected. This will start a list of some kind.

A little good news: The New York Timesis more than making up for declining advertising with growth in paid subscriptions. Ad revenue was down 8.1% in the most recent quarter, but circulation revenue was up 9.7%, thanks largely to the success of a new paywall program. Forbes reports that the International Herald Tribune and Boston Globe are also seeing promising results from their early paid digital subscription initiatives.

The world’s ultimate value investor – Warren Buffett – has apparently decided that there’s untapped value in newspapers. His Berkshire Hathaway has just purchased 63 of them along with a 3% stake in Lee Enterprises, and Buffett says he plans to buy more. Newspaper lovers should applaud Buffett’s interest. A self-described newspaper “addict,” he believes in an intensely local editorial focus and a sustainable business model. His interest in the newspaper industry could be a boost for paywalls. “The original instinct of newspapers was to offer free in digital form what they were charging for in print. This is an unsustainable model and certain of our papers are already making progress in moving to something that makes more sense,” he wrote in a letter to publishers.

The New York Times traveled to Buffalo to check out The Buffalo News, which Buffett has owned since 1977. It found a profitable operation that has scaled down intelligently over the years through buyouts rather than layoffs. Buffett has little personal involvement in daily operations, but his philosophy of investing in local coverage and skimping on overhead is evident everywhere. Media Audit says The Buffalo News has the second highest audience penetration of any newspaper in the country. Part of this could be because the Rust Belt population of the area is older than the typical demographic, but it’s still remarkable that more than 70% of Buffalo households have read the paper within the last month.

If anyone can figure out how to make a newspaper profitable, it’s Warren Buffett. He built an estimated net worth of $44 billion by buying distressed businesses at the bottom. His interest in this industry would indicate that there are better days ahead.

First-quarter 2012 total expenditures totaled $5.18 billion, down 6.86% from $5.56 billion a year earlier. Online revenues grew by just 1% to $816 million, which was the smallest for any quarter since 2009 and not nearly enough to offset the 8.2% drop in print revenues, to $4.36 billion. The Newspaper Association of America previously revealed that print revenues (in absolute dollars) fell by half between 2005 and 2011. And there is no end in sight.

“There are a lot of new things to like about today’s Observer,” writes Kari Borgen, publisher of the Observer of Union and Wallowa counties in Oregon. Borgen goes on to celebrate the Observer‘s new design, added features and bonus puzzles, among other goodies. What she fails to dwell upon is the fact that the issue that “seems bigger and feels heavier to you today” is that way because frequency has been cut from five days to three. The Observer eliminated Tuesday and Thursday editions and now publishes only on Monday, Wednesday and Friday. No one has yet gotten around to updating the About page with this information.

Details of the legal wrangling between stakeholders, negotiations with the FCC and the likelihood of judicial approval of a restructuring plan will leave your eyes crossed, but the bottom line is that the company’s three-year stay in Hotel Chapter 11 may finally be nearing a conclusion. There’s still regulatory and legal wrangling to be resolved, including a petition to transfer Tribune Co.’s broadcast licenses to a group of banks and hedge funds that will own the company. There’s also a challenge from a group of junior bondholders who are challenging the restructuring plan and who might sue 35,000 former Tribune Co. shareholders to recover more than $2 billion in claims.

Whatever happens, the likely outcome is that Tribune Co. will be carved up and sold off piecemeal by the banks and hedge funds that assume ownership. The real value of the company is in its portfolio of 23 TV stations and some other equity investments. The newspaper business is barely a rounding error on the balance sheet. The story in the Tribune notes, “Before the Zell deal, Tribune Co. entertained offers topping $2 billion for the Los Angeles Times alone, but today, according to a recent valuation analysis by Tribune adviser Lazard Freres & Co. the entire publishing group of eight newspapers, including the Times and Tribune, is worth about $623 million.”

By the way, the Chicago Tribuneis considering a novel approach to paywalls. Instead of charging for access beyond a certain number of articles per month, the paper would charge for bonus content, as ESPN does. The tactic has worked well for sports addicts, but observers question whether it can succeed in local news. It hasn’t done so anywhere yet.

The always-provocative Mathew Ingram writes about why we need to reconsider the concept of the article in publishing. This traditional approach to packaging information is rooted in the limitations of printed media where hyperlinking was impossible. Now, however, we have the ability to deliver only what’s new and link to the rest. Jeff Jarvis has been beating this drum for some time and in a post entitled “News articles as assets and paths,” he suggests that articles will devolve into component parts that can be mixed and matched according to need. Why reinvent the wheel with hundreds of words of background every time we update a story? Simply provide the new information and link to the rest. Jarvis has even suggested that new kinds of media organizations could emerge that specialize in different kinds of assets, such as news, multimedia or background. An example of the latter is Wikipedia, which is a great source of background information for many timely events. Reddit is building this model with its Ask Me Anything forum, which has become a coveted destination for book authors. Basically, Reddit is becoming a specialist in Q&A assets.

Everyone is doing infographics these days, and we’ve never seen a bandwagon we couldn’t hop on. This one was actually created by Frugal Dad last November, but it popped up on Business Insider last week. Some of the information is out of date. For example, GE no longer owns NBC, so the sixth company is now Comcast. And Time Warner got rid of AOL. But the main point still holds: Media consolidation has reached a pinnacle, with only six corporations controlling 90% of media in America. And 250 million bloggers and Twitter users controlling the rest.

Editor & Publisher asked readers to nominate news organizations that are doing innovative things to diversify their businesses and find new revenue streams, and the list of 10 Newspapers That Do It Right 2012 shows that creative thinking is alive and well at mainstream publishers, although mostly at smaller ones.

The mini-case studies are a grab bag of ideas, ranging from novel circulation promotions to radical new lines of business, but they all have one thing in common: They leverage the newspaper’s unique position as a trusted companion within a geographic area.

Some papers have found ways to innovate within their traditional business, like the Carrollton, GA Times-Georgian, which scrapped its advertising rate card in favor of a time-based package that gives advertisers a variety of positions and sizes. It’s a smart idea that recognizes that advertisers are the least-qualified people to dictate where and when an ad should run.

Others are diversifying outside of the advertising dependence that has been the crack cocaine of the newspaper industry. The Altoona Mirror in Pennsylvania launched an events business that hosts thematic gatherings around things like cooking and outdoor recreation. The new line of business is a natural extension of the newspaper’s traditional role as community gathering spot, but also requires a change of philosophy. “We’re not selling a product called ‘a newspaper’ but manufacturing a product called ‘audience,’” said General manager Ray Eckenrode. That wasn’t so hard, was it?

Several organizations have completely merged their print and online operations, which surprised us because we assumed most newsrooms had done that a long time ago. Still, the reorganizations have cut production times and improved staff morale as journalists have bought into the idea of platform independence. It’s hard to believe that at some newspapers copy is still thrown over the wall between Web and print instead of created from scratch for an online audience.

A couple of entries even highlighted efforts by newspapers to push into the broadcast market. Manitoba’s Winnipeg Free Press, which is one of the largest papers to be recognized, took advantage of cutbacks in election coverage by local TV stations to set up a live webcast at a coffee house and analyze election results throughout the evening. Considering the dismal quality of most local TV news operations after years of cutbacks, this seems like low-hanging fruit.

E&P also lists 11 honorable mentions for a total of 21 stories of innovation. The package is nicely edited and there’s an accompanying photo gallery. It would be nice if there were hyperlinks to some of the featured examples, but we supposed E&P has still got some learning to do.

Money from Content

We recently reported on a little-noticed milestone in the New York Times Co.’s fourth-quarter earnings: Revenue from digital sources surpassed editorial operating costs, making it theoretically possible for the Gray Lady to get out of print entirely without affecting its editorial quality.

Now the Financial Times may be about to turn another corner. Content sales are about to eclipse advertising revenue. CEO John Ridding sprang this news on an FT conference in London earlier this month. The secret is mobility. By reaching paying audiences on phones and tablets around the globe, the FT is able to greatly increase its reach at almost no marginal cost. More important is that it now knows something about those people.

“The real power is in data,” Ridding said. “We’re moving from the dark ages where people would walk into a newsagents and we wouldn’t know them but now we know pretty much everything about them.” Contrast that thinking to a recent Pew report that found that few newspapers are using targeted advertising to reach online readers based upon their interests. But the FT is a business paper, after all.

Near the end of the overview section of the Pew Research Center’s exhaustive study of the business issues facing American newspapers, one unnamed executive sums up the industry’s dilemma: “There might be a 90% chance you’ll accelerate the decline if you gamble and a 10% chance you might find the new model. No one is willing to take that chance.”

That’s it in a nutshell. The newspaper industry is standing on a railroad ­trestle 100 feet above a rushing river while a locomotive bears down on it. The only thing worse than getting hit by the train is jumping out of the way. The study outlines in depressing detail how paralyzed the industry is in its search for new business models, although there are glimmers of hope in the successes of a few innovators.

Pew’s Project for Excellence in Journalism surveyed 38 US newspapers and conducted extensive on-site follow-up interviews to examine the industry’s search for new business models. The sample was representative of the composition of US newspapers as a whole, with a mix of geographies and a preponderance of smaller titles.

In general, small papers are faring better than the large ones, but all are facing the same specter off print advertising declines that far exceed growth of digital alternatives. In fact, researchers concluded that for every $1 gained in new digital revenue, newspapers are losing $7 of print revenue.

“There’s no doubt we’re going out of business right now,” said one executive.

No Names, Please

One of the project’s most frustrating characteristics is its anonymity. Researchers had to promise not to name names in order to get executives to let down their guard. The result is some memorable quotes but few actionable examples. We learn of one small paper that posted 63% growth in digital revenue in the last full year while also growing print sales 8%. Another major metro daily was said to have grown its digital business 50% in the last year. It would great if these outliers would come forth and tell everyone else how they did it, but we may never know their identities.

The Pew study is emphatic in identifying the industry’s core problems as more cultural than operational. “There’s a big difference between understanding the new media environment and comprehending what it takes to adapt,” says one executive.

Fifteen years after the arrival of the commercial Internet, the industry continues to rely on print advertising to an alarming degree and has made only halting progress in developing new revenue streams. That isn’t for lack of trying. Everyone is trying to find digitally savvy salespeople, most are paying premiums for online ad sales and all publishers are aware of the need to experiment with alternative revenue sources like daily deals and business services.

However, they’re mostly having meager results. Few papers studied in the report are taking advantage of the growth in targeted digital advertising. Most are still reliant upon low-margin display ads. Nearly half of the publications have experimented with alternative revenue streams like consulting services and digital shopping malls, but only one reported any significant revenue.

Culture Clash

Unfortunately, rapid sales declines in the profitable print business are creating a hair’s-on-fire hysteria that sabotages change. The kind of salespeople publishers need to hire don’t want to work in an industry that’s in crisis. The number of print-focused sales representatives outnumber digitally focused reps by about 3-1 at the newspapers surveyed and there continues to be debate at some companies about whether digital is event the future. That sounds incredible, but the study identifies entrenched resistance among many publishers to diverging from the business model that served them so well in the days of monopoly market share and 20% profit margins.

Officials at 10 of the 13 companies said their biggest challenge was the continuing tension between people in their organizations who are advocating a more aggressive digital approach and those more aligned with the legacy tradition. In essence, they described a conflict between going faster and going slower…”We haven’t needed innovative people,” explained one executive. “So you get what you need. The kind of people that came into this industry were more operationally focused, executors instead of innovator risk takers.”

The good news is that there is broad awareness at the highest levels of the companies surveyed that the industry’s problems aren’t going to heal themselves. In fact, no one quoted in the report suggests that the current downturn is temporary or cyclical. Where they differ is on what to do about it. “The data and interviews suggest companies are almost evenly divided between optimists and pessimists-evidence of a lack of consensus on how to proceed in developing the new business model,” the report says. Unfortunately, at a time like this the only certainty is that inaction is death.

“In contrast to the crisp, graphically engaging and highly interactive apps flooding the Apple store, the typical newspaper site is filled with gray, meandering columns of text requiring multiple swipes to get to the bottom of the page. That is to say: Newspapers don’t come close to leveraging the power of this new medium,” Mutter writes, pointing to products from the San Francisco Chronicle, Philadelphia Inquirer and even The New York Times as examples.

Many publishers are opting to use the native tablet browser to deliver content rather than customizing the experience for the device, and some are simply delivering PDF versions of their print products, Mutter says. This laziness is particularly alarming in light of the fact that people who consume information on tablets are among the most desirable prospects for paid circulation and advertising. The Newsosaur believes once they get a load of the visually rich and interactive offerings from magazine and broadcast competitors they’ll never come back to the digital broadsheets being offered by the dailies.

Although we own a tablet, we’ll admit we haven’t spent much time surveying the landscape of news apps. RSS feeds do the job just fine for us. However, if Mutter’s critique is on the mark, this is a head-slappingly stupid mistake on the part of publishers, who finally have a platform that at least some people are willing to pay for. Anyone who has worked in both print and digital media will tell you that the design and presentation skills that work in one format fail badly in the other. The worst mistake a print publisher can make is to put print designers in charge of online look and feel. It’s even worse on tablets, where apps offer a whole new level of interactivity. This is software, not ink on dead trees.

NYT Co. Takes Earnings Hit

Now the sobering news about The New York Times. Coming off a promising third quarter in which the company reported strong growth in subscriptions to its digital editions, parent New York Times Co. reported a $40 million loss in the fourth quarter on an 8% decline in print advertising. The paper’s paywall continues to thrive, and digital advertising revenue was up 5% in the quarter. However, the success online can’t make up for the continued free-fall in the much more profitable print advertising business.

The collapse of that revenue stream was dramatized by blogger Paul McMorrow, who came up with the chart at right. We can’t vouch for the accuracy of the numbers, but the choice of scale demonstrates clearly the industry’s dilemma. Digital revenue is nowhere close to making up for the decline in print.

The Times Co. was also hurt by a dramatic drop in the performance of About.com, the online encyclopedia/how-to engine it acquired for $410 million 2005. About.com was victimized by recent changes to Google’s search algorithms that penalized so-called “content farms” like Demand Media, which pay freelancers pennies to produce crap in the name of driving search traffic. About.com used to top Google search results for a lot of popular consumer queries, but no more. Profits at the site dropped 67% in the quarter on a 25% revenue decline.

Miscellany

Social media is beginning to cover itself. Social blogging site Tumblr, which hosts more than 42 million blogs, will hire two professional editors to write about what’s going on on Tumblr. The thinking is that a community with that many members must generate a lot of content all by itself. Twitter and Facebook have both recently hired journalists to write about what’s hot in those communities.

US online advertising spending, which grew 23% to $32.03 billion in 2011, is expected to grow an additional 23.3% to $39.5 billion this year-pushing it ahead of total spending on print newspapers and magazines, according to eMarketer. Print advertising spending is expected to fall to $33.8 billion in 2012 from $36 billion in 2011.

Online Growing Even Faster Than Expected: eMarketer’s previous US online advertising forecast from July 2011 was among the more bullish estimates issued during the year-forecasting 20.2% growth to $31.1 billion in 2011-yet consistently stronger-than-expected results from major industry players and the IAB/PwC benchmark through the first three quarters of 2011 contributed to the upward revision.

Total Ad Spending is Growing Too: Despite concerns about the troubled economy among agencies and marketers, total ad spending in the US is expected to rebound in 2012 after rising 3.4% to $158.9 billion in 2011, according to eMarketer. US total media ad spending will grow an estimated 6.7% to $169.48 in 2012, boosted by the national elections and summer Olympics in London, eMarketer estimates.

TV is Steadily Up: Spending on TV advertising grew 2.8% in 2011 to $60.7 billion, eMarketer estimates. This year, TV ad spending will grow an estimated 6.8% to $64.8 billion-driven the Olympics and election-while remaining resilient from worries about the soft economy.

Digital remains the sole bright spot for newspapers and magazines: eMarketer estimates US digital newspaper ad revenues grew 8.3% to $3.3 billion in 2011. Print advertising revenues at newspapers fell 9.3% to $20.7 billion in 2011. At magazines, US print ad revenues are expected to rise 0.5% to $15.34 billion in 2012, up from $15.3 billion last year. US digital advertising spending at magazines grew 18.8% to $2.7 billion in 2011.

We’ve posted several positive items about the local Patch operation in our community, a one-person news bureau that has become our favorite – and most timely – source of information about local events. So we feel it’s also important to share the news that AOL’s Patch operation, a constellation of more than 800 hyperlocal news sites, looks like a train wreck.

Business Inside says Patch has generated only about $8 million in revenue in 2011 on an investment of more than $160 million. InvestorPlace says revenues were closer to $20 million, but that Patch still lost $150 million on the year. Some investors are calling for the head of Tim Armstrong (right) the former Google executive who took the helm at AOL nearly three years ago. Armstrong conceived of Patch in 2007 and funded the first two years of its operations before assuming the top job at AOL in 2009 and buying Patch outright. Since then he’s embarked upon an aggressive expansion program to place hyperlocal news bureaus in as many US locations as possible. He’s also spent lavishly on the acquisitions of Huffington Post and TechCrunch. At this point, critics are calling the strategy a bust.

The problem with Patch is that the hyperlocal revenue model doesn’t work nearly as well as the hyperlocal news model. According to Business Inside, Patch sells advertising through a network of mostly outsourced telesales representatives. It’s clear that these sales people don’t have their tentacles into the local communities that are the core of Patch’s model. The advertising on our own local outlet is mostly a mix of display ads from big national brands (presumably sold at remainder prices), Google AdSense and a smattering of classifieds. With that kind of revenue base, it’s not surprising Patch is losing a fortune.

As we’ve argued before, the hyperlocal model needs to work from both the content and revenue perspectives. Patch has clearly succeeded in hiring editors who are closely tied in to their communities, but it isn’t doing that on the sales side. This is a tough problem to solve. Small businesses aren’t big advertisers to begin with, and the cost of deploying dedicated sales reps to 800 local communities would be far higher than the centralized telesales model. On the other hand, the centralized model isn’t exactly killing it.

We hope Patch figures it out, because it’s inventing some creative new ways to report the news. We continue to like the business model of Sacramento Press, which positions itself as an integrated marketing partner rather than an advertising outlet. Addiction to advertising revenue is one of the reasons newspapers are in so much trouble in the first place. In its current iteration, Patch appears to be making the same mistakes.

Miscellany

As if reporters don’t like to gripe enough, there’s a new website where they can do it anonymously in public. It’s called Dash30Dash.org, and it was started by a former newspaper reporter who wants “to give reporters, editors and others a chance to post comments about their jobs and their ever-changing profession.” So far, it looks like the commentaries are mostly limited to contributions from the site’s creator, but it’s still early. The writing is lively and pointed, so check it out.

Wood, whose personal fortune is estimated at $337 million, was apparently taken with the example of ProPublica in the U.S. That nonprofit investigative venture was also started with a large grant from a single donor but has been successfully diversifying its support base and now employs 34 editorial staff members. Wood’s commitment to support The Global Mail for at least five years resulted from a dinner party conversation with former Australian Broadcast Corp. journalist Monica Attard, who is now the site’s editor-in-chief. That’s pretty good sales efficiency in our book.